Half Year Loss, Group Restructuring

South Canterbury Finance: Half Year Loss, Group Restructuring And Recapitalisation

Southbury Corporation Limited, the parent company of South Canterbury Finance Limited, has fulfilled a longstanding commitment to support the Company by making a substantial injection of new equity into South Canterbury Finance totaling $152.5 million.

The capital injection was completed on 28 February 2010 and was pursuant to a group restructuring in which Southbury Corporation Limited, which is indirectly controlled by Mr & Mrs AJ & MJ Hubbard, sold its 100 per cent shareholding in Helicopters (NZ) Limited and 64 per cent of the shares of Scales Corporation Limited to South Canterbury Finance.

The total purchase price of $162.5 million has been satisfied by the issue of approximately 317.7 million new ordinary shares by South Canterbury Finance to Southbury Corporation for an aggregate issue price of $152.5 million, all of which shares have been credited as fully paid, and by the payment of $10 million in cash. The transactions were reviewed by Independent Experts approved by the Crown, under the Company’s Crown guarantee, who certified to the Crown that the acquisitions were at fair value and on an “arms length” basis.

South Canterbury Finance now holds approximately 79.7 per cent of the equity of Scales Corporation and 100 per cent of Helicopters (NZ).

Mr Hubbard says Helicopters (NZ) and Scales Corporation are both excellent businesses with which he has had a long and personal association, as a founder of Helicopters (NZ) and as a driving force in Scales.

“Scales is an innovative company closely linked to New Zealand’s backbone industries. Helicopters (NZ) started life eradicating gorse on South Island hills and evolved to be an internationally recognised helicopter operator working in many countries supporting global resource companies, government funded research and tourism.”

Helicopters (NZ) and Scales Corporation are substantial and highly profitable companies. In the year ended 30 June 2009, Helicopters (NZ) reported earnings before interest, tax and depreciation (EBITDA) of $30.2 million and net profit after tax (NPAT) of $16.2 million. Scales Corporation reported EBITDA of $35.4 million and NPAT of $13.6 million. The combined FY09 results for Helicopters (NZ) and Scales Corporation were EBITDA of $65.6 million and NPAT of $29.8 million.

The results for the current financial year will reflect more challenging market conditions and the usual uncertainties regarding currency and export realisations. Both companies have sound growth prospects over the longer term.

“The earnings contributions of these two successful companies are now part of South Canterbury Finance, which materially and substantially changes the earnings profile and prospects for the Company. The acquisition of Helicopters (NZ) and Scales Corporation will provide a superior outcome for all stakeholders.”

Mr Hubbard says his absolute confidence in the future of South Canterbury Finance and the role it plays in providing funding for the growth of businesses, particularly in provincial New Zealand, has led to the further investment in the Company by Southbury Corporation.

The transactions will initially restore then improve the capital position of South Canterbury Finance which has been adversely impacted by an increase in provisions for the six months to 31 December 2009 arising from extended weakness in economic conditions and depressed asset prices.

After a rigorous review of all asset valuations by the new management team and board, assisted by new auditors Ernst & Young, the provision for losses on impaired or non-performing assets has been increased by $180.3 million. As a result, the Company has reported a preliminary unaudited net loss after tax of $154.9 million for the half year. South Canterbury Finance will release its audited results when the audit has been finalised.

Including the Scales Corporation and Helicopters (NZ) transactions, the net equity of South Canterbury Finance on a pro-forma financial position at 31 December 2009 was $252.8 million. On the same basis, the Company’s equity ratio was approximately 11.8 per cent of total assets of $2.15 billion.

As a consequence of the acquisitions of Helicopters (NZ) and Scales and the capital issued for these, South Canterbury Finance would have been in breach of two of the financial covenants contained in its trust deed. These covenants relate to the level of single party exposure (the investment in shares in Helicopters (NZ) is greater than 35% of shareholders’ funds) and the level of total equity investments to total shareholders’ funds (which is greater than 100%). Trustees Executors Limited has granted a waiver from compliance with these two covenants until they are next tested following completion of the Company’s 30 June 2010 financial statements.

Commenting on the performance of the Company in the six months, South Canterbury Finance Chief Executive Officer Sandy Maier says sectors other than property are largely performing satisfactorily.

“The rural sector is benefiting from the upturn in the price of milk solids which has in turn had a flow-on effect to businesses in provincial areas where the bulk of South Canterbury Finance’s lending customers and assets are located,” Mr Maier says.

“The half year result incorporates a total of $229 million of losses on asset realisations and additional allowances for impairment. The underlying trading results show a breakeven result for the six months which is creditable given the significant disruption and costs experienced during this period.”

As previously indicated, the Company continues to enjoy the support of its investors with the steady net inflow of funds in excess of redemptions evident in January 2010 extending through February. The re-investment of funds has also continued at satisfactory levels as qualifying investors continued to seek the benefit of the Company’s attractive rates and Crown retail deposit guarantee scheme.

The Company is working with The Treasury on its application for acceptance into the extended retail deposit guarantee scheme effective from 12 October 2010 through to 31 December 2011.

Mr Maier says progress is being made daily to consolidate South Canterbury Finance’s position. Further restructuring and asset sales will be undertaken to continue to strengthen the Company’s position and revert back to its longer-term history of sound financial performance.

“The enthusiasm of the staff and management with the active support of the directors and advisors for the tasks undertaken has been unstinting and gives great encouragement for the future of the business.”

“In recent times, the Company has engaged with a wide number of parties interested in concluding capital and funding solutions for South Canterbury Finance. Forsyth Barr is continuing to work with South Canterbury Finance to advance proposals to further strengthen the capital base of the Company. Further announcements will be made when arrangements are confirmed,” Mr Maier says.

Contact:
Sandy Maier
Chief Executive Officer
South Canterbury Finance
021 163 3806

Editor’s note:

Helicopters (NZ) Limited is one of New Zealand’s leading and most experienced dedicated helicopter service operators. The business was founded in Timaru in 1955 and is internationally recognised for its high performance levels across a diverse range of helicopter capabilities. The majority of revenue from helicopter service operations is derived from term contracts with a broad range of customers including oil, gas, and mining companies, public sector, corporate, tourism, and long established companies. The company is headquartered in Nelson and has principal maintenance and overhaul workshops in Nelson, New Plymouth, Perth, and Vientiane (Laos PDR). The company has an annual turnover of approximately $90 million. Further information is available at www.helicoptersnz.co.nz.

Scales Corporation Limited is a public unlisted company and one of New Zealand's oldest and most respected companies having been formed in 1912 as a shipping service for the wool industry. Today Scales consists of a wide range of businesses including Mr Apple New Zealand Limited, the largest grower, packer and exporter of apples in New Zealand, as well as extensive coldstore operations through Polarcold Stores Limited and Whakatu Coldstores Limited which service many of New Zealand's primary producers. In addition Scales owns and operates one of New Zealand's most experienced shipping agents with a long history in the shipping and cargo industry sectors and one of the largest pet food processing operators in the country. The company also has a bulk liquid storage and processing business, a captive insurance company to service the group's needs, and also manages a substantial property portfolio throughout the country.
Further information is available at www.scorp.co.nz

ENDS.

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